Sugar, Sugar: Catastrophe or False Warning?

Last week, the American media community appeared to be focused on our national health system, and on our government’s continuing efforts to extend health insurance coverage to all Americans.

And why not be focused on it? After all, health care spending does account for 18% of our national economic activity, and is expected to continue growing as the baby boom generation ages into seniorhood.

But under the media’s radar screen, another curious development took place, one that might ultimately wield just as much of an impact as a national health plan. Namely, many of America’s leading food producers issued a stark warning about a prospectively looming shortage of sugar caused by a trade quota catastrophe.

Tempest in a Tea Cup?

Before you shrug and and say ‘no big deal; I’ll simply switch from Earl Grey & Sugar to English Breakfast & Honey,’ keep in mind that sugar is a major ingredient in thousands of food staples, including baked goods, candy, and (gasp!) chocolate. A shortage in sugar could thus mean soaring prices, or even extensions of food shortages, into all of these product categories.

Still not concerned about maintaining your sugar fix? Then consider that Brazil has eliminated crude oil imports by developing a sugar based ethanol gasoline industry. That’s right; Brazilian motor vehicles can run on sugar instead of traditional gasoline. The Brazilian government decided to implement that strategy in response to the oil crises of the 1970s; during the past three decades, they completely overhauled their national energy system while America complacently continued to purchase traditional gasoline fueled SUVs and minivans.

Still not concerned? Then consider that the sugar industry’s major competitor and common substitute is an innocent sounding ingredient called high fructose corn syrup. Already used in thousands of its own food staples, including such diverse liquids as soft drinks, soups, and salad dressings, high fructose corn syrup has been scientifically linked to obesity; in fact, it has been tagged as one of the major culprits behind weight gains and other health problems among America’s youth and adult populations.

So an extreme scarcity of sugar would be no tempest in a tea cup; it might lead to food shortages, increases in energy costs, and a transition to a substitute ingredient that may worsen America’s obesity epidemic. Not exactly a trivial threat, is it?

A Self-Inflicted Wound

So who would be responsible for the development of a sugar shortage in the United States? A powerful global cartel of foreign sugar producers, perhaps? Or a billionaire investor, intent on cornering a popular commodity market?

No, not at all! According to this week’s communique by America’s leading food producers, a shortage would be a self-inflicted wound. To be precise, it would be (according to the producers) a direct consequence of our federal government’s anti-trade import quota policies.

You see, in order to protect our domestic markets against foreign competitors, America slaps hard quotas on all sugar imported from non-NAFTA countries. Most notably, that includes Brazil, whose sugar based ethanol gasoline industry might prove helpful in weaning American industry off of crude oil and oil byproducts. But because American sugar producers would prefer not to compete against the Brazilians, the quotas remain in place, and our food and energy industries remain impacted by these policies.

Earlier this week, global sugar prices spiked to record highs, extending a months-long shortage of the sweet commodity in India. That led to concerns that the scarcity could spread to America and other nations.

Before We Panic …

Ready to panic yet? Before you do, it’s only fair to note that certain economists and business commentators believe that dire warnings of sugar shortages are nothing more than politically motivated attempts to open the American market to foreign competition. Some note that sugar is not scarce at all in the United States; at the present time, there are no empty grocery shelves or warehouses to speak of, and previous price spikes have always quickly self-corrected in the commodity markets. And few cultural trend spotters see Americans demanding more sugar in the near future; recent proposals to tax soft drinks that are rich with sugar and corn syrup to raise funds for the health care overhaul would, if anything, drive down demand for the sweet commodity.

Nevertheless, stranger things have occurred in the commodity markets during the past few years. We’ve seen the price of crude oil soar above $147 and then crash below $33 within a matter of months. And gold has fluctuated between $400 and $1,000 since 2004. So why not sugar?

And wasn’t it just last year that food prices were sent soaring along with gasoline policies as our oil companies complied with federal laws by switching over to corn based ethanol gasoline during the summer months? That drove skyrocketing gasoline prices even higher, and led to higher corn costs for food producers as well.

That was certainly a prime example of a governmental policy, originally instituted at the behest of environmentalists who prefer ethanol based fuels, wielding an unintentional impact on our energy and food industries. Only time will tell whether sugar quotas, originally instituted to protect a small section of our agricultural industry, will do so again.